I’ve been looking into who uses credit scores – FICO scores or other alternative scores – and I’ve found that the insurance industry is a major user.

Homeowners insurance rates, for example, varies wildly by state depending on what kind of credit score you have, often more than doubling for people with poor credit versus people with excellent credit. This is in spite of the fact that homeowners insurance applies not to the payments of mortgages but rather to the contents of an apartment or home.

Statistics like this make me wonder, how much of this price discrimination comes from the insurance companies trying to understand and account for actual risk, and how much comes from their understanding that poorer people have fewer options and will simply pay predatory rates?

And just in case you’re a believer in free markets and fair competition, and think such predatory behavior would be whisked away in a competitive market, insurance companies actually target people who don’t shop around and charge them more. In other words, it’s not a free market if not everyone actually has good information.